Time to review your investment strategy

By Tim Miller
Miller Super Solutions

When the Superannuation Industry (Supervision) Act 1993 (SIS) was amended to incorporate the requirement that all SMSF Trustees must regularly review their Investment Strategy, the question was asked “what does regularly review mean”?

The ATO gave us a number of instances when it was appropriate to review our Strategy and right now ticks a number of boxes. With the end of the Financial Year approaching, changes in the regulatory landscape immanent and a member’s insurance needs a factor in the estate planning process clients should be using this time, and possibly the next 12 months to review their strategy to see if they are going to meet their Fund’s objectives but perhaps more importantly to see whether or not they need to change those objectives given the goal posts are likely to have shifted in 12 months time.

One of the critical issues that is certainly top of mind with the Federal Budget announcements but perhaps should be there regardless is weighing up the risk of the investments. This is certainly going to become a big issue as clients potentially seek to maximise returns to compensate the loss contributions in their desire to target the $1.6m Transfer Balance cap. The Industry needs to ensure that Trustees are aware of the risks associated with investments that promise exceptionally high returns because “if it’s too good to be true, it probably is” is more often than not proven to be correct. This will be the test for many, to have a balanced approach to their investment objectives and subsequent strategy to make sure that the strategy doesn’t put them in a worse position than they started, particularly if they have used their non-concessional lifetime limit and have no way to replace losses.

Similarly linked to the Transfer Balance Cap, and inevitably many of these issues are, is what to do if members already exceed the cap. Is this now a time to contemplate a segregated asset approach to try and maximise growth post 1 July 2017 exclusively to any pension account? Do clients start to identify assets based on capital appreciation or income to determine whether it sits in a pension or accumulation pool. Of course this consideration must be done in contemplation of the income requirements of the pension but will certainly be a factor moving forward.

Whilst looking at a growth versus income strategy this 12 months might also be important for those clients currently in Transition to Retirement who are likely to stay there or at least will stay in that category of client for the next few years. Is now the time to look at re-balancing investments and refreshing cost bases while the pension is entitled to a tax deduction on the income? Come 1 July 2017 the tax exemption will be lost until a member moves into a full pension so reviewing existing assets from a taxation position should be a given.

Finally is the need for insurance. Whether to hold insurance inside or outside of super is always going to be a worthy debate but the introduction of more restrictive contribution caps may mean many members need to look at alternative estate planning options and the most obvious one is insurance. Yes there are issues with insurance and non-tax dependents but there are also many factors that need to be weighed up when considering these issues.

Overall there has never been a more appropriate time to review an SMSFs investment strategy than right now. I’m off to have a look at mine.

General advice warning:

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.

Miller Super Solutions is the SMSF education & training creation of Tim Miller, assisting SMSF professionals and trustees with the practices associated with establishing, running and ultimately closing down SMSF’s.

http://www.millersupersolutions.com.au

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